Carlsberg’s  FY14  earnings  of  MYR211.6m  (+15%  YoY)  were  above expectations.  Despite only 5.1% YoY growth in sales, the strong FY14 showing was largely attributed to better contribution from its Singapore arm and ongoing strategic cost management. A final and special DPS of 66 sen was declared, bringing its full-year DPS to MYR0.71.  Upgrade to BUY with a revised TP of MYR14.20 (from MYR12.80) (10.4% upside).

FY14  results  surpass  expectations.  Carlsberg’s  FY14  earnings  of MYR211.6m  were  above  our  and  consensus  estimates,  accounting for 111% and 109% of FY14 earnings forecasts respectively. Although FY14 sales were up only 5.1% YoY, earnings grew by 15% YoY largely due to: i) better contribution from its Singapore  arm  after the completion of the stock rationalisation program, ii) improved EBIT margin to 16.1% (FY13: 15%) from ongoing strategic cost management, and to a lesser extent, iii) higher associate contribution. A final and special DPS of 66 sen was declared, bringing its full-year DPS to MYR0.71 (FY13: MYR0.61).

Better  earnings  contribution  from  both  Malaysia  and  Singapore. Although FY14 sales were flat in Malaysia, EBIT was up by 10.4% owing to  its strategic  cost management and improved  price  and  product mix. Meanwhile,  Singapore  outshined  Malaysia  with  sales  up  23.2%  YoY following  the  completion  of  stock  rationalisation  program  in  1Q14, effective consumer campaigns and completion of Maybev acquisition in April 2014.  Sequentially,  Singapore  recorded  a  26.6%  YoY  increase  in its EBIT, owing largely to the strong sales.

Forecasts.  We  nudge  up  our  FY15F-16F  earnings  forecasts  by  14-15.7% after updating our sales and margins assumptions. We also take the  opportunity  to  introduce  our  FY17  projections.  Key  risks  to  our recommendation  are:  i)  weaker-than-expected  sales  volume,  ii)  an excise  duty  hike,  and  iii)  payment  of  the  MYR56.1m  bills  of  demand (24.4% of FY15F earnings).

Upgrade  to  BUY  with  a  revised  TP  of  MYR14.20.  Following  our earnings  revision  and  update  to  our WACC  assumption  to  8.2%  (from 8.4%),  we  raise  our  DDM-derived  TP  to  MYR14.20  (from  MYR12.80). We  like  Carlsberg’s  resilient  earnings  with  decent  growth,  given  the defensive  nature  of  the  business.  Not  least,  dividend  yields  for FY15F/FY16F are decent at 5.8%/6.2% respectively.

Source: RHB